The OECD’s annual survey of Australia’s economy last week bluntly noted what most Australians understand very clearly – housing is expensive and in short supply.

The report highlighted issues with planning that restrict density in urban areas, but importantly it also noted the need to reform Australia’s tax system to stop favouring investors.

Housing affordability has for well over two decades now been a critical issue for Australians.

The OECD annual survey of Australia revealed that not only does the data support people’s feelings that housing is much less affordable than in the past, but that what is happening here is unique.

Since 1996, the ratio of house prices to annual income has risen around 97 per cent, compared to 20 per cent in the United States and 17 per cent across the entire OECD.

Canada, which has a similar land size and population to Australia compared to European nations such as Germany, the UK and Italy, has also had strong price rises. But these mostly came in the 2010s off the back of very low interest rates after the Global Financial Crisis and also a low Canadian dollar, which made it attractive to buyers from the US.

The OECD notes that one thing that is particularly exceptional with Australia’s housing market is that most of our dwellings are detached houses.

Detached houses make up 71 per cent of Australia’s housing stock, compared to 40 per cent across the whole OECD. This has led to the great suburban sprawl in Australia’s capital cities.

As such, the OECD suggests a needs for “land-use policy reforms, such as removing overly tight building height restrictions or minimum lot size requirements needed to achieve more medium- and high-density housing”.

It notes that “reforms of this sort have improved affordability in cities such as Auckland and Tokyo”.

But while increased housing density is one approach, the OECD notes the problem is much deeper.

It finds that Australia is a particularly poor supplier of social and public housing. This is an issue The Australia Institute has long noted.

Earlier this week the Australian Bureau of Statistics released the latest building activity figures. They showed that, for nearly 25 years, the number of public-sector residential buildings constructed for every 100,000 residents has been below 20, compared to well over 100 in the 1950-1980s.

It’s little wonder then the OECD has found that Australia has among the lowest share of social housing available for rent across the organisation.

Just 3 per cent of the total dwellings available for rent in Australia are social housing. By contrast, they make up 16 per cent in the UK, and 7 per cent across the entire OECD.

However, while higher density and more public housing are key issues, the OECD is not afraid to note the major role of Australia’s tax system in decreasing affordability.

In a section titled “the tax system and subsidies boost housing demand”, it notes that “home ownership as an investor is further supported by a 50 per cent capital gains tax reduction”, as well as “mortgage interest deductibility for investment properties and the provision for ‘negative gearing’ ”.

The OECD recommends “removing some of the favourable tax treatment of residential property ownership, including capital gains tax concessions and negative gearing, would help to cool demand and could help to mitigate upward pressure on house prices”.

This echoes Australian Institute research.

The CGT discount and negative gearing cost the government around $12.3 billion a year – $7.2 billion of which goes to the richest 10 per cent of Australians.

In its submission to the Senate inquiry into the operation of the capital gains tax discount, The Australia Institute noted “that the 50 per cent CGT discount has introduced a distortion to the tax system that favours the wealthy and increases inequality”.

“It acts as an incentive for housing investors that allows them to outbid prospective owner-occupiers and placed home ownership outside the reach of many,” it said.

The OECD agrees, and the findings in its annual survey should add weight to those demanding a change to how housing is treated in Australia.

Dr Greg Jericho is chief economist at the Australia Institute and the Centre for Future Work.

This article first appeared in The Point. Read the original here